Over the course of 2013, if you work in technology (and startups) and live in the Bay Area, you probably noticed a few things. The traffic is getting considerably worse. Public transportation (when it’s working) is more crowded. New buildings and rents are going up. The profits at large, Valley-based technology companies are rising. In fact, if you look around the world, it’s high tech and the Bay Area that are providing the only real source of growth in international markets — hence the flood of all new types of capital engulfing the Bay Area.
Along with it, as I’m sure you’ve noticed, is what appears to be a never-ending stream of socio-commentary about how the Bay Area is out of touch, how this is a bubble, how Silicon Valley is the new Wall Street, and so on and so on. I’m not here to argue the merits of these positions, but the angst behind them is very real. On a national level, scores of jobs are not coming back, and many people are unemployed, underwater, in debt, and broken down. On a hyper-local level, the Bay Area is also undergoing massive change, but of a different variety: gentrification, new construction, congestion, rising rents, poor housing turnover, and the list goes on.
There are real problems on a national level, and unfortunately, I don’t know how to solve them — I’ll try to write more on this later in the year. I need to really think about it. But, in terms of the Bay Area, I have identified three (3) huge risks that I believe must be addressed so that the ecosystem can continue to thrive as it has for over 50 years. I’ll be brief here in my prescriptions, since analysis can often just lead to paralysis, but I will also be clear — I believe all three of these issues *must* be addressed and the likely driver for them will be the fortunate titans of the technology industry:
Increased Affordable Housing: The region has plenty of land, but zoning restrictions and other laws make it harder to build new habitations. A large portion of these need to be allocated for affordable housing. I will rest my case by the fact that both Google and Facebook have purchased private property near their campuses with a goal of converting that land into housing units for employees. People are going to continue to rush here because there are so few opportunities elsewhere. I have heard stories of Starbucks baristas who commute over three hours a day to work in the city in order to keep their healthcare.
Unified Public Transit: The ass-backwardness of Caltrain not smoothly interoperating with BART and SF Muni stifles urban agglomeration and puts extra strain on the region and will come back to bite it in the rear, big time. Once affordable housing is increased, how will all these people get around? Not by the current system, that much is true. It’s time the powers in the state come together and expand and unify the systems, increase capacity, and modernize with a heavy hand. Yes, it will inconvenience some people, but the status quo will just eat away at all the gains the region has made.
Increased Arterial Roadways: Improved public transit will relieve some pressure on the system, but the choke points getting in and out of the main city are too narrow to keep up with the demand. They need to be widened. People in Marin should be able to get to the Valley without stopping at lights in the city. People in the East Bay should be able to get to SFO without being choked into two lanes as they meander through the Civic Center.
Three things. If policymakers and the wealthy focused on this, many things would follow. I know there are many, many other problems — and they are real: Prop 13, decline in social services, losing our coastal parks, etc. I don’t mean to diminish them. But, let’s focus on a few from which many things will get better. Three things only. Now, who is going to do this? That’s the billion-dollar question. It will take a just a very small group of people, some tech luminaries who have done well and want to give back, paired with some savvy policy hands who can make sure these visions become a reality. I sincerely hope it happens.
Earlier in September 2013, I wrote a post about the three most significant venture deals for 2013. I was motivated to write it after AngelList finally announced. I was frankly surprised at how often it was read — my posts here aren’t too widely read. The danger in a post like that is that you leave people out (and their deals), but I still stand by the fact that transportation, mobile communications, and the venture industry are going through massive changes, and that companies like Uber, SnapChat, and AngelList make for significant investments in the sense they best represent the changes we see before us. That is not to say, however, that they will be successful. Time will tell…
In this vein, I’ve also been trying to think — What are the sectors where founders and investors got irrationally excited about in 2013, and what are the key themes driving them? Well, I’ve finally answered that question, so here are my thoughts, and yes, I essentially think 2013 is over for new ideas — sorry about that! (I do give honorable mention to “Internet of Things” and anything touching the enterprise stack, mobile or wearables, or the cloud, but those are all mega-secular trends, as they were important in and prior to 2012.)
One, Bitcoins. The allure of an encrypted currency masterminded by an anonymous monikered Japanese hacker is just too bright to ignore. There are just so many fascinating kernels within a Bitcoin, be it the elegance of the math involved in its derivation, the anonymity it affords users through cross-border transactions, the volatility in pricing and limits on the numbers of coins in circulation, the fact that coins must be mined using hidden keys, or the timing of its rise coinciding with a propped-up global economy where the only growing sector is in technology. As a result, investors started placing their Bitcoin bets, a Bitcoin-focused fund was launched, people started buying Bitcoins themselves (I just bought some right now), and it became the talk of Twitter. In researching Bitcoin-related companies for investments, I found two kinds — one, where you can exchange Bitcoins for currency (like Coinbase, OpenCoin, and BitPay), and another where you can trade Bitcoins indirectly for cash-equivalent tender (where I invested). Ultimately, what’s most interesting about Bitcoin to me is how the up-and-coming generations are more and more distrusting of institutions, including financial ones, and after the banks helped put us into a mess leading up to 2008 and now are reaping the rewards of being too big to fail, the times scream for another currency abstracted away from the state where people can freely store and exchange funds without the fear of insider trading and adverse risk.
My posts from 2013 on Bitcoin are: (1) The Theatricality & Deception Of Bitcoin [link]; (2) How Five Real Economists Think About Bitcoin [link]; (3) Fred Wilson Thesis On Bitcoin [link]; and (4) *Special mention, this panel included a talk by @Naval on Bitcoin which is my favorite [link]
Two, Drones. Earlier this year, I was listening to Swell in the car and came across a random podcasts talking about the drone industry. Somewhere in the discussion, an expert (who was legit, I remember) said that once drones hit the commercial market, the drone industr will mature over a decade to about an $80bn+ market. Um….Holy shit! That is why investors get so excited about the hardware potential, the corresponding software, and all the business use cases that come with automation like this. Imagine drones surveying crops, traversing mountains, and other types of data collection and surveillance. I would love to learn more about the sensors inside drones (much like phones) as well as the camera technology and software that’s possible with these machines, and how well (or not well) these devices will track with how smartphones evolved.
I don’t have any posts on drones from this year — my bad. But, if you know anyone working on these spaces, please let me know: Drone camera hardware; Drone camera software; Drone operating systems (like Airware); Other physical sensors inside drones, such as weather, location, Bluetooth LE etc.; and Deployment mechanisms on the drones
Three, Bridging Online “Taps” With Offline Logistics. Depending on what city you live in, chances are you’ve now been trained to tap your phone and get a specific service, like a black car, or a car with a pink mustache, a person to bring you a burrito, or your groceries, or someone to clean your car, clean your apartment, or clean your laundry, or ship your boxes, and so forth. Every week, a new service seems to launch that aggregates and organizes freelance labor (those with excess time) to help those who have money but not time. While one may wonder about the unit economics and margins of these businesses across the board, Uber and Lyft are leading the charge here making real revenues and addressing huge markets. A number of companies in these spaces are doing well, such as Postmates and Instacart, and there are some unsavory reasons as to why. I have invested in a few companies in this space, such as Instacart, Gyft, and a few soon-to-be-announced. I’ve also written about a part of the trend here, Recruiting The New Labor Force.
I do want end by sharing one important, sobering note on the last point, as to why these “bridging” companies are able to do so well so quickly…yes, mobile is part of the story, which quickly aggregates demand, and yes, the entrepreneurs are incredible, for sure…But…
The bad news is that the American economy has undergone a massive, massive structural change. The Economist reported that 95% of the economic recovery since the 2008 crisis has gone to 1% of the population. There is a big skills gap between technical jobs and those out of work and their vocational ability. People are stuck in their homes, many of which are either under water, or they don’t want to move and realize gains because the next purchase could put them in the hole based on rising prices. So, people are either out of work (and freelancing), or cannot move, and sometimes, both. “Those jobs aren’t coming back” sums up the situation.
What does this all mean? It means that a large part of the economy is unwittingly engaging in a massive race to the bottom. For instance, you can earn over $30/hour as an Uber driver in the Bay Area. That is outstanding and providing real work opportunities. People who were laid off or can’t find regular work can be Postmates during the day, Lyft drivers at night, and get their laundry taken care of for them by Prim. This race to the bottom has many, many implications. Someone who is unemployed will then have advantages based on their location (“I can be a Prim laundry person in San Francisco, but not San Diego”), or by their automobile (“I can be an UberX driver with my Prius, but I’d need a suitable black car to drive regular Uber”), or by their preference on work time (“I can work as a Postmate every night, when demand is highest”) and so forth. All of these companies are taking advantage of these structural changes to the economy at large and the labor economy specifically.
Now, how long will this last? Studies show more and more people are preferring a freelance style over working at one job from 9-5 daily, but these jobs pay hourly, often without benefits. Rents in cities are going through the roof. Student loan debts are reaching the point where they’re about 2% of what the mortgage crisis booked, and it’s growing. These jobs aren’t also creating more transferrable skills for those who work them, which reduces any economic agglomeration effects in the long-term. One way to think about this in real terms is the private transport market in a city like San Francisco. Now, I want to be clear and say that I’m a happy user of both Uber, UberX, and Lyft — all great companies. San Francisco is undergoing a big economic transformation, but while more and more wealth moves from paper to liquid over the next 24 months, the city’s management is already so bloated that there’s little room or political will to improve the city’s poor public transit infrastructure. But, when you have a segment of the population with smartphones and more money than time, and you pair them with people who can hop in a car and supplement their income, you have a new marketplace forming that solves a big problem in the immediate-term but also fundamentally changes the interactions between city residents. In a place like New York, most everyone rides the subway at least somewhere — in San Francisco, the person on the bottom floor of your Mission townhouse could be your Lyft driver when you go out to that startup party in SOMA.
I could go on and on about why this is so important for online-to-offline startups to think about, but you get the idea. What it does mean, in the near-term, is that labor is readily available, and if it can be trained, organized, and delivered in a way that saves other consumers time, there is a potential business to be made. There are swaths of people who need jobs yesterday, and new companies like the ones I’ve listed help create a temporary, soft cushion at what would otherwise be a very rocky bottom of the economy.
I wrote this a few months ago but was thinking about this today, and realized I forgot to post it here…
In 2013, we have seen a reincarnation of “man vs. machine,” except this time, the machines aren’t algorithms — the machine is government. Within a few months, various levels of government across the United States have made headlines with respect to new technologies, products, and services. Unmanned aerial drones, which have a touchy relationship with citizens worldwide already, present complicated scenarios.
The Texas state government, for instance, recently banned drones for most private use; the state of North Carolina is considering a ban on direct sales of Tesla vehicles; Airbnb was deemed illegal in New York state by a judge; ride-sharing startups like Uber, Lyft, and Sidecar face constant threats and hurdles as they expand outside of the Bay Area; and of course, there’s Bitcoin, where Mt. Gox suffered a recent Fed crackdown as the most active exchange for the popular crypto-currency. The ways things are going, 3-D printers will be banned because some fanatic will hack software that lets him print a 3-D gun.
The common thread weaving through this trend is that the pace of technology is empowering individuals to actively participate in fundamentally new markets and economies. Even just a few years ago, it wasn’t as easy to buy a fully-electric luxury car and not send part of your income to the local gas station; it wasn’t as easy to earn over twice one’s salary by ditching grocery bagging in favor of providing livery services; it wasn’t as easy to convert cash into liquid digital currencies; it wasn’t as easy to rent out your apartment, or your spare bedroom, or your couch to earn a little extra scratch; and it wasn’t easy to physically print out items at home or send items to others via unmanned aircraft.
This shift comes at a critical time for America. In a sluggish economy slowly recovering from the largest wound since the Great Depression and adjusting to a fundamental, structural change (aka, those jobs aren’t coming back), the country is in desperate need of innovation. I say “desperate” because even with successful innovation, our economy isn’t on an enviable pace for growth. Mega-forces like widening income inequality, crushing debt burdens, and the politically-toxic mismatch between our immigration policy and inability to properly educate children for the jobs needed today combine to form a potent mix of stagnation. In lay terms, if someone is laid off from their job bagging groceries because of online grocery delivery or automated checkout machines, will government also prohibit them from using their car to give a “Lyft” to others for money, or renting out the spare room in their apartment on Airbnb to offset their fixed mortgage rate, or storing some of their savings in Bitcoin after losing most of their 401k savings in the 2008 economic collapse?
It remains to be seen how far governments will go. Laws are made to protect people from harm, but they’re also made by taking into account the interests of special interests who spend billions to lobby the halls of Congress. Innovation like the types cited here directly threaten a range of powerful, incumbent, cash-rich industries who view lobbying costs as a minor line-item expense, the cost of doing business in America. The other side of this coin is that, right now, government regulation that overreaches to the point of suppressing an individual’s ability to earn a living wage is the political equivalent of playing with fire. It’s early, but consumer demand is pointing in a direction where the democratization of access to technologies like electric vehicles, 3-D printers, alternative currencies, and peer-to-peer lending puts more power into peoples’ hands than government can realistically control.
Aggregate consumer demand is distrustful of large institutions, is willing to pay for goods crafted specifically for them, is open to turning their assets into wealth-generating vehicles, and so much more. It’s hard to see how government will try to control this. Alas, it will. There is too much to lose. Perhaps this is why many of the startups listed above (and their investors) have begun to form relationships with local and national politicians, have actively participated in panels nationwide with public officials and commissioners, have hired former politicians and policy analysts to help them anticipate these collisions and actively participate in the lawmaking itself to keep the interests of these startups in mind.
The interests of startups like these are the new “special interests” — in fact, they’re “our special interests” — and they protect much more than the companies doing the legwork — they can protect the future income, livelihood, and social security of the former grocery bagger, and in a country founded on principles of humility and hard work, it would be a shame — perhaps even evil, given the criminally economic circumstances of the last two decades — to not empower consumers and leave consumers unprotected. I’m optimistic startups will be part of the conversation that stitches these new laws and regulations together, and I fundamentally believe it is startups like these and all of us consumers, individually and collectively, that will spark the next waves of innovation, with government enabling it, not restricting it. Let’s hope so.
Lately, I’ve been feeling the urge to write about more personal matters or interests outside of work and technology, topics ranging from music and arts, to politics and foreign affairs, and from culture to parenting. As my blog has matured and I spend more time on it, it’s now mostly about work — which is fine. Occasionally, I’ll put these kind of tweets out on Twitter, but as most people out there expect startups and venture-related stuff, it can feel disjointed. More importantly, the tweets on more sensitive matters could be misinterpreted and would probably benefit from a bit more text and context. I had kept this feeling in the back of my mind, and lately, as I’ve been using @Medium, the software is so clean and fun to use, it’s actually motivated me to write more. I won’t push these Medium posts to Twitter, but if you ever want to visit those collections as they evolve, you can simply visit: https://medium.com/@semil
The Bay Area is in flux, and this has been on my mind for a while. I finally had the time to detail my two cents on how this new structural economic change has enveloped the Bay Area and what it means for folks in the region. See below.
The unraveling of the Enron debacle in 2001 became a symbol of corporate scandals of that era. The effects were so decimating to loyal employees vested in their employers’ retirement plans and public investors, the Federal Government responded with legislation the following year, the Sarbanes-Oxley Act (SOX). Originally intended to protect employees and retail investors from cutting-edge white-collar crime, SOX placed onerous requirements on public companies — so onerous, in fact, it has effectively encouraged some of the most high-growth private corporations founded after SOX to remain private much longer, to tap secondary markets to access liquidity, and to file IPO papers after company insiders and private investors reaped the rewards. The result can be seen most recently in the Bay Area, where reports surfaced this week suggesting Facebook’s IPO was mostly responsible for catapulting San Mateo County past Manhattan in terms of wealth, and as I’ll try to argue, might be indirectly responsible for the risinghouse prices, increased traffic, transit strikes, and bespoke apps Bay Area residents enjoy today. The rent is, indeed, too damn high.
Let me state upfront that I am not blaming Facebook, insiders, or investors. In fact, all actors acted rationally within their rights. Facebook is just one shining example of a trend where the technology sector is the real growth-sector of an American economy which has barely withstood two separate economic recessions within a few years of each other. As a result of money flowing into private technology equities and combined with the restrictions imposed by SOX, new technology companies have enjoyed more access to private capital and have thus been able to remain private longer. While SOX was originally designed to protect the public from “the next Enron,” the unintended consequences of such restrictive legislation dampened the appetite of private shareholders and investors to tap public markets too soon. Unfortunately, one of the most harmful consequences of SOX can be seen through the story of Facebook’s IPO and the wealth that it generated — mostly residing in San Mateo County.
When wealth is created but concentrated in certain ZIP codes, both local areas and the nation’s economy is affected. It all has a cascading effect. With more wealth locked into San Mateo and surrounding counties, the demand for assets rises quickly. House prices skyrocket. Individuals who don’t have enough cash reserved for a down-payment are forced to rent, where competition for rental property creates its own endless race. Contractors rush to meet housing demand, springing up buildings in a boom-time that create noise pollution and closed streets and blocked highway on-ramps, which combines with more and more warm bodies flocking to the Bay Area for the shot to work in the one sector that provides any hope for real, sustainable economic growth. This is why — in large part because of SOX — that your rent is high, why there’s so much traffic and construction, and why it won’t change anytime soon.
There are many, many reasons a great number of people would benefit if private companies operated in an environment where restrictions wouldn’t dissuade shareholders and investors from accessing public markets earlier. Entrepreneurs and investors would have an attractive exit option earlier in their life cycle; entrepreneurs wouldn’t have to rely on “build and shut down” acquisitions to get an exit; employees and insiders wouldn’t feel as much pressure to access liquidity through secondary offerings; wealth-creation would be more spread out and could generate even more jobs; and retail investors would have an equal chance to invest into the next Facebook when its valuation is, say, around a billion dollars versus when its $100B. For a bit of perspective, Google IPO’d after raising a relatively modest amount of venture capital, and Microsoft IPO’d at a $500M valuation — in these cases, the wealth created post-IPO was spread out and technically available to all who could invest in public markets.
Scott Kupor, a Managing Partner at Andreessen Horowitz, wrote a strong piece artfully detailing this view, suggesting over-regulation effectively blocks the entire middle class from participating in the massive wealth creation driven by technological advancement. Over the years, USV’s Fred Wilson has written many great posts on this topic, discussing the nuances of going public early, how public markets can have a harmful effect on company culture, and how potentially distortive the IPO process can be relative to true company value.
OK, so there’s my analysis and argument. I expect many will disagree with my assessment of SOX being the root cause of this, and there are indeed many strong cases to be made that companies should remain private longer. I also believe this is a structural change in the Bay Area — not a cyclical one. It’s easy to dismiss this and say “it’s a bubble” or “this is just cyclical,” but the fact of the matter is that this wealth has been generated and is now kept in the Bay Area — it’s not going away.
Given this, what should folks in the Bay Area technology and startup sectors expect as a result? Eventually, yes, more affordable and micro-unit housing will come on the market, but there’s barely enough transportation infrastructure to handle the increase this will create. In the meantime, here’s what I think we should all anticipate. First, naturally, asset prices will increase, creating all sorts of inflationary pressures, especially on rental inventory. Second, founders should expect to pay even higher wages for talent, and investors should expect founders will want to raise more money as a result. Third, I suspect more and more people will opt to not commute between the Valley and San Francisco as rubbernecking will only increase, so big tech companies will build satellite offices to retain their talent. More private capital will continue to find its way to the Valley in an economy where technology is the only viable growth sector. While I believe things will get sorted out in the Bay Area in the long-term, the immediate term situation currently is and will continue to be disruptive to many. This is just the beginning.
I am not sure what “direct” solutions exist given the limitations of government’s response time. I personally like to see interest in new models emerging as a byproduct of these challenges, many born through frustration and resulting in creative solutions. I enjoy the national conversation around ridesharing and private transportation ignited as a result of the BART strike. I welcome the debate around private shuttle busses ferrying technology workers in and out of a region that can’t provide reliable transportation on its own. I want to see more conversation about the balance between landlord and tenant rights, and to see assets shared according to supply and demand. I hope the economic demand drawing people here will pressure zoning laws to loosen and bring more inventory to market. I want the sharing economy to strengthen inside the fabric of standard economic activity. There will continue to be ideas and realities that irk residents, but this type of “indirect” experimentation is the only way to arrive at a sustainable solution. The region and its entrepreneurs are responding by bringing new products and services to market, and thankfully, are not asking for permission first. The way I see things, this is the only path. Buckle up!
Earlier today, I wrote kind of a mean tweet about Facebook. In retrospect, it wasn’t fair and a bit over the top — I got up at 6am and had a huge coffee and wasn’t careful with my words. Anyway, my tone obscured the meat of my argument, which is that my observation of Facebook’s “in-stream” ads on the web were really bad, as in, really irrelevant to me. See the picture above. The problem for me is that serving me ads based on my friends’ “Likes” is problematic, even for the best algorithms, because those signals are either stale, not tuned well, not dynamic, and not implicit. Yes, I know the Open Graph was going to help solve this, but with things like PRISM, SnapChat, and mobile devices which unbundle every piece of Facebook, I’m not sure that promise will be fulfilled.
In a nutshell, Facebook excites me because it’s relevant — to me. I’m on it every day. I converse with friends all the time. I enjoy it. I want Facebook to be really good. I don’t mind getting ads on Facebook. In fact, I want to know what products and places and things my friends truly like. That carries weight with me. On the right-rail in Facebook, those ads often make sense because I’m sure Facebook is tracking other pages I visit. Fine by me. What I’m talking about are the big sponsored stories and other posts that appear larger in my feed or as roosters — they’re completely irrelevant, largely because Facebook’s algorithm probably gives too much weight to my friends explicit “Likes.” Some have pointed out that Facebook’s ads are tuned to maximize revenue — which is fine, I get that — but I’ve yet to been served an ad that is interesting. Maybe I’m an outlier. I guess it comes down to revenues versus relevance. Some worship all of Facebook’s data-driven decision-making and want the algorithms to generate the highest revenue based on clicks, while others (like me) want the ads to be more relevant, because at its core, Facebook is about me — it’s all of my relevance rolled into one network. Anyway, I thought I’d explain my rationale in a more collegial manner than before. Thanks for reading.
P.S. I’ve been thinking about what I’d like Facebook to build, products that would be useful to me. I realize Facebook has their own plan. But, hey, they’re in more of a pickle than I am….Here is my wishlist:
UPDATE * * Gifting (Physical Goods): I just became a dad. I’m usually the one to keep in good touch with people, but forget birthdays. A lot of people have asked me for my physical address to send a gift. I’ve done the same. I’d love for this to happen through Facebook. I realize I can send // My friend just pointed out that Facebook already has physical gifts. I had no clue. See here. Perhaps Karma integration. This great, I hope it expands!
Recommendations: If some of my friends have been to a restaurant or other place, even just talking about it, I’d love for Facebook to grab that implicit data (just like Google reads my emails) and serve both ads and recommendations to me. Yes, show me that five of my friends went to the new beer garden in Mountain View. Yes, please. That’s what I want.
One-Click Purchase Outside Facebook.com: I order a bunch of things online, just like everyone else. I’d love to just hit a FB-branded “Buy” button and have it automatically know my credit card, address, identity, etc.
Photo Prints: Again, being a new dad means a lot of folks want physical pictures. I’ve already used a service to upload and send them. This is the core of Facebook — photos — and I know families would be all over the auto-sharing in real objects, making books, etc. It’s simple stuff but constantly reinforces the brand in the real world.
Politics: This is the big one. I’ve always felt U.S. politics will only change when people can vote from their mobile devices. In order for that to happen, laws need to change — FB has power. Second, our identities need to be tied to our phones and verified. Facebook can do this. Combine these items and the resultant mix could be potent, both politically and financially. Social networks have already help citizens in other countries organize, and I see no reason why Facebook couldn’t have that power in the U.S.
I wrote this piece in September 2012 on TC, looking at how structural — not cyclical — changes in our economy have helped startups create new jobs for the unemployed and laid off.
Most Apple fans become slightly uncomfortable at the sight of Apple’s latest television commercials featuring celebrities talking aimlessly to their iPhones. A subtle message in these ads is that consumer technologies can now place virtual assistants in the palms of our hands. The advertising logic is as follows: get a new iPhone, ask it for information or to run tasks, and it will oblige. In the case of those celebrity commercials, it almost feel as if they’re talking to a digital version of the real life assistants they employ.
When it does work, Siri helps Apple create a deeper emotional bond between the consumer and their technology. While handheld technologies are providing varying levels of assistance to users, a similar wave is taking over the San Francisco Bay Area, not just with bits, but humans, too. A number of separate forces are converging to make segment, organize, and mobilize human workforces for just about any human-powered task one could imagine.
Companies such as Task Rabbit and Zaarly, for instance, have been well-covered, so I won’t go into them here, other than to set the context for new models that have recently emerged, such asExec (on-demand labor at a fixed, hourly rate), Postmates (delivery within an hour), and Instacart(groceries within an hour). One could also argue services like Lyft and Sidecar, which allow ordinary citizens to drive their cars around like taxis, or Cherry and YourMechanic, which send people to wash or fix, respectively, your car, all fall into a similar category
Stepping back to observe the trend, there are three large forces converging simultaneously to make this all happen now. First, the obvious force is the continued proliferation and advancements in mobile, handheld technologies, with more and more people owning not just one mobile device, and endlessly searching for newer applications and models to deliver better experiences than traditional websites, customized to our location, context, and other variables. Think of the “services” tab on Craigslist, but now on your phone. On my iPhone, I have a folder dedicated entirely to housing the apps listed above, which I’ve labeled “Services.”
Second, many of these companies seem perfectly positioned for the future when seen through the lens of how a company like Amazon may expand in the future, especially as it pertains to local delivery. Amazon is investing significant resources into various aspects of local delivery, whether it’s groceries, lockers, or maybe even drones (couldn’t miss a Tacocopter reference). Aside from Amazon, this is also a type of mobile marketplace where handheld technologies can help organize excess labor supply to generate, route, track, and complete these tasks, where entirely new companies are formed, complete with consumers’ credit cards for seamless payments, double-sided rating systems for better customer service, and the ability to more efficiently route requests for work and pair those requests with a new labor force.
Third, the structural inefficiencies in the American labor market provide an opportunity for these new companies to capture both labor and supply quickly. We are all painfully aware that in recent years, the U.S. economic output has slowed, that more and more citizens are not only out of work, but go unemployed for longer stretches, and as those stretches increase in length, they exponentially impact the ability to find the next gig. There is also growing income inequality in the U.S. Just five years ago, in 2007, the richest 1% of the American population owned just over a third of the country’s wealth, a ratio that gives the country one of the highest GINI coefficients in the world. Politics aside, what this means financially is that rising unemployment, combined with lopsided wealth distribution, creates a new labor supply that can be organized and routed, to pair those with extra time with those who have disposable income.
With armies of willing freelancers ready to complete all sorts of tasks, paired with efficient routing networks built on the backs of iOS and Android, what we have is, effectively, Siri for real life, a digital assistant transformed into a personal assistant. You can hire a Task Rabbit wait in line at the Apple Store to hold your place for an iPhone 5, call on a Postmate to have a jar of Grey Poupon delivered, use Instacart on the nightly Caltrain commute to delivery the groceries you need, and take a Lyft or Sidecar out later that night — all done with just a few simple taps of the finger, and you have Siri in real life. (I thought I’d try to infuse one of these services into the post, so a very special thanks toDavid Sament, whom I found on Task Rabbit, and helped me research some of the economic statistics and indicators.)
As with any new wave, there is an underbelly. These new companies are more efficient at routing a freelancer’s time, assuming there’s enough demand. Being an actual freelancer may suit some just fine, for a while, but eventually, I’d imagine many of them may want more predictable, more reliable forms of employment — a sentiment many Lyft and Sidecar drivers expressed to me during my many rides with them. These folks often were in between jobs, or in some kind of transitional phase of their lives. The way forward could be that companies like Postmates or Instacart provide that softer landing for those moving in and out of the formal labor market, or perhaps they themselves turn into real companies that fully employ freelancers, more along the model that Exec seems to be carving out, as a staffing solutions company.
It’s uncertain where we go from here, and that’s the exciting part. Right now in the Bay Area, which itself seems to be quite open to experimentation in these new business models, it’s unclear how these services scale to other geographies, maintain quality, and whether both sides of these marketplaces will provide enough liquidity to grow as fast. Here, in and around Silicon Valley, a great deal of wealth has been generated, and many can opt out of services, such as transportation. Or, perhaps, the income inequalities here serve as a petri dish for what is happening all over the country right now, and rather than fight about which government policies will help reduce unemployment or whether certain jobs will ever come back, it will actually be companies like Exec, Postmates, Task Rabbit, Instacart, and others that will actually provide the much-needed structural economic backbone to help people either between jobs, or make this a full-time job in an entirely new economy.
I love this quote below from Fred Wilson. Full video is below, but go to 1hour, 3min mark to see the conversation on Bitcoin. Part of this video is confusing because Battelle makes it seem as if USV invested in Bitcoins, but USV in fact invested in a company in the Bitcoin ecosystem. That’s a big difference. Note that Wilson recently led a Series A from USV into Coinbase, where they invested $2.5M in dollars, not Bitcoins :-)
I don’t know whether it’s going to be Bitcoin, or some derivative, or fork of Bitcoin, but I do feel that we are losing trust over time in our institutions, our banks, our governments…they can’t fuck us over anymore, it’s just enough, and so we need to come up with something new that we can trust in, and a lot of these institutions that we’re gaining trust in are on the Internet, and they’re communities — they’re things like Reddit, Tumblr, and maybe Bitcoin too, and they’re based on protocols, things like RSS, SMTP, and potentially Bitcoin as well. We may be completely wrong, it may be a fantasy…it’s straight out of a sci-fi novel, but sci-fi novels are the best things you can read if you want to invest…it feels right to me, it’s a gut-bet.
Lyft just raised $60M in funding. Whoa! For the last year, I’ve contended ride-sharing at scale “could be” a massive trend and have corresponding economics that are attractive. About 11 months ago, in July 2012, I started commuting to SF every day from Palo Alto, so I started to take Caltrain (ugh!) and then try a battery of startup transportation services, including Lyft and Sidecar. Here’s my initial, informal review of all of the seven (7) different services I used. As a disclaimer, I live in the apartment where Zimride was founded in Palo Alto, and the founders are friends of mine. And, I am a transportation junkie, having worked at an airport, container port, and a few other related odd-jobs. (I also hosted Lyft co-founder John Zimmer “In The Studio” for a conversation, which is below.) Finally, in August of 2012, I wrote about this trend in my “Iterations” column, trying to string together how the products and services could hit big markets — I’ve pasted the text from that piece below. Wow, huge. Really happy for Logan and John.
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There was a time in the United States when federal and local governments could initiate and orchestrate big, sweeping infrastructure projects. One of the most notable was the establishment of the interstate highway system during the Eisenhower administration, a post-war public works project to connect an enormous nation and bolster its defenses. It also helped unlock a new era of interstate commerce. Decades later, the government tried again with the creation of Amtrak, but for a host of reasons, well, that hasn’t really worked out. Instead, success came in aviation, which further accelerated economic growth, and the rise of the American (and eventually global) automotive industry, which created many jobs, ignited technological progress, and fueled the country’s renewed investment in building more roads and settling more suburban areas, all the while selling more cars as part of the new American dream.
The country’s transportation-related feats are impressive, in many regards. We can freely drive coast to coast in a few days, with relatively cheap gas along the way. Passengers can fly to virtually any part of all 50 states within a day. While rail has been either neglected or the victim of politics, it’s no matter — the nation has put a man a moon and, just this week, engineered a system to land full-fledged roving vehicle on the surface of Mars! Yet, on Earth, on American soil, the nation can no longer make basic transportation connections or improvements. It took years for the New York City metro area to figure out how to “efficiently“ connect its subway system with its two airports. The region with the highest road traffic density — the Northeast Corridor, from NYC to Boston — had their plan to retrofit rail to handle high-speed cars stopped by individual land owners protecting private property rights. In the Bay Area, we simply can’t link Caltrain to BART in the city’s downtown area. The public wants cheap transportation and access for all, but either no one wants to pay for it or they don’t want to give up their property to see it happen. And, here we are…
A decade into the 21st Century, oftentimes it feels easier to get from JFK to LAX than it is to get from the upper west side to JFK itself. The transportation choices for citizens, especially on an intra-city basis, are far from optimal. Combine that with a sagging economy, a struggling domestic auto industry, rising gas prices, and dangerously attractive auto financing terms, and consumers are going to start experimenting with alternative means of getting from point A to point B. And it is here where entrepreneurs have been creating new behavioral models around transportation, leveraging social data, mobile devices, and marketplace inefficiencies to reinvent how we get around.
Car-sharing as a peer-to-peer transaction is fueling the charge. Ever since Zipcar emerged as a new model to give consumers an access to a predetermined fleet of cars, the public, especially in dense urban areas, have begun to see car ownership not only as a financial burden and logistical headache, but also as something that is harmful to their local environments. As a membership-based company, Zipcar’s success even motivated incumbent car rental companies to experiment with different rental models, as well as paving the way for an entire fleet of new companies trying to create innovative solutions in the space.
In the past few years, serious new enterprises have formed to tackle this overall problem with a variety of models. Uber, which started as Ubercab, is probably the most high-profile of the new breed of transportation-related startups, and recently expanded its offerings from providing private black town cars on demand to electric vehicles (and ice cream trucks). A few months ago, their newest product, UberX, came after a San Francisco-based Sidecar became more known to the city’s inhabitants, which offered a new kind of smartphone-enabled car service with a fleet of private citizens, vetted by the company, who would use their own vehicles as taxis. At the same time, Zimride, a ride-sharing company already serving many key corridors such as SF to LA and SF to Tahoe, launched a new product, “Lyft,” which is quite similar to Sidecar except that Lyft drivers are asked to place big, pink, furry mustaches on the grills of their cars for easy identification. (Note that Sidecar and Lyft use community-driven “donation” models for paymens, and like Uber, allow both driver and rider to rate each other.) While Zimride was launching Lyft, yet another startup - Ridejoy - was posing competition on social ridesharing routes.
We’re not done yet. So far we’ve covered services where someone else drives you around. But, what about when you want to take the wheel, sort of like Zipcar? Well, you’re in luck, because there are great new companies opening up these new markets, too. In no particular order, you have Wheelz, a marketplace for people to book or list other peoples’ cars; Getaround, similar to Wheelz, which wowed crowds last year by announcing that Berkshire Hathaway would cover driver insurance and built their own mobile app-powered remote locking system ; RelayRides, which is also similar with a slightly different revenue model; and a slew of international players in this space, such as Whipcar in the United Kingdom. And, if you want to get around with a slightly different style, there’s Local Motion, Scooter Networks, and while I haven’t seen them all, I’d bet there are ways to rent out your bike, skateboard, or even rollerblades.
Initially, I was skeptical of these models. But after some time, it all became clearer to me. This summer, I’ve been commuting more from downtown Palo Alto to SOMA in San Francisco via Caltrain, and then have to lumber up to the Embarcadero. I chronicled the different services I’ve used here, but all in all, in six weeks so far, I haven’t used a cab or Uber town car all summer — I just Lyft, Sidecar, or walk. I haven’t used cash for any of these, either, and most often, these rides are about 40% less than what a typical taxi would have charged, and just 2-3x what it would cost on public transit. I’ve yet to try the car-rental models like Getaround and RelayRides, but after suffering through a few traditional rental car experiences this summer, and considering the listings on these services are increasing, I’m sure I’ll be both a consumer and provider on these marketplaces. I’ve even thought of listing my car on Airbnb as a place to sleep at night, as its legal to sleep in a car in Palo Alto, as I hear real estate here is going through the roof.
Speaking of Airbnb, these fleetless car-sharing marketplaces are really similar to the big apartment and home-listing site. In the few months I’ve been a consumer and preparing myself to list my 10-year old European sedan, consumer mindset seems to have shifted slightly. It turns out that many folks are totally OK with getting a ride by a stranger in that stranger’s car, or renting out their car to someone for a few hours or a few days. In many cases, it turns out, it’s easier than hailing a taxi in San Francisco and dealing with a rental agency and their archaic rules. And, investors in these companies are actually using them, too, most notably a Getaround investor who made a few thousand per month listing his two cars and a RelayRides investor who actually bought a nice used car exclusively to list on the site, calculating he could actually make money over time after paying off the car.
The potential of these markets are huge, though getting to the promised land won’t be easy. As Uber has learned, these new models, while providing more choices (and cheaper prices) to consumers, can also stoke fears among those entrenched interests who have the most to lose. A few years ago, Airbnb had to fight off the hotel lobby in various cities who were threatened by the enormous market the young company was opening up. In a similar way, city medallion holders and car rental companies may, over time, see some of their markets threatened by companies who don’t manage fleet inventory but rather route supply to demand and take a cut of the transaction.
At the end of the day, yes, there will be roadblocks, but I’m bullish on this consumer trend, especially considering how congested many cities are becoming and governments’ overall inability to gather enough consensus (or funds) to actually build sufficient infrastructure. Just using some of these services over the past few months has impressed upon me that these aren’t just new markets, they’re actually movements. It’s strangers coming together, it’s new opportunities for work, it’s helping other people out, and it’s extracting rents from assets that would otherwise be laying dormant. Nearly every Lyft or Sidecar driver I’ve had, in addition to being genuine and courteous, was either trying to supplement income during a job transition or had just moved to the city to start their careers. They found it was a good way to pass the time, to meet people, to learn the city, and help make rent. If citizens can’t get the transportation systems they need from governments, we’ll have no choice to make new ones ourselves. That is sort of what’s happening, and as a transportation junkie, it’s just awesome to watch unfold.
I have lived in downtown Palo Alto now for about three years. I love it here. I used to live in San Francisco proper in another life, right on Dolores Park. I actually worked as a cook at Bi-Rite, which gives me some SF cred, I hope :-) But after moving back here, I do love being in Palo Alto and my wife works for the University, so it’s convenient for us now. All that said, the startup culture that was once here just three years ago has essentially vanished. Startups like Quora, Pinterest, Pulse, Zimride, and countless others have fled this storied, leafy suburb for other places, mainly San Francisco. There are countless reasons why young startups leave (rents driven by school districts, for one), the greatest being the draw of the greatest city on Earth.
But, there is another reason — it’s because one company, Palantir, is growing fast, has lots of money, is very, very particular about how physically close it remains to the best pool of talent for its business — Stanford University. I often see building and security guards from Palantir around town, and every now and then, I’ll chat them up and ask about how things are going. Back in February 2013, I asked one how many buildings they have — he said around 11, but going to 14 soon. I’d imagine they’re at 14 now.
Yes, of course, some startups are still here, like Ayasdi, Tune-In, Wealthfront, among others, and it’s nice to see some friendly faces, but it’s simply nothing like it was three years ago, and I can only imagine well before that. I don’t know what will happen moving forward. Maybe Palantir will get so big they’ll need their own big building (maybe Page Mill?), but I doubt they’ll want to let go of their Stanford gazebo. Or, maybe they’ll lobby for more office space, like the new building going up at Lytton and Alma (I know SurveyMonkey will be there, too).
Personally, I’m a renter and into my last year in Palo Alto, which is fine. I don’t matter, it’s the startups that matter. Maybe this is just the free market at work, no rent control, a dispassionate level of supply and demand. Or, maybe zoning laws and construction permits need to loosen up for more moderate priced housing. I know, incidentally, that Stanford itself has a hard time recruiting professors because many hailing from other locales wonder if they can afford to buy property anywhere close to The Farm. Recently, right behind Page Mill, Stanford finally unveiled another set of row houses earmarked for faculty, kept neatly under $1m per lot. (Stanford owns a LOT of land, so eventually, they’ll be under pressure to develop it, but not anytime soon.)
Anyway, not sure how to end this other than to say it’s just different here, and I can imagine how different it was from 5, or 7, or 10 years ago. And, maybe that’s just fine. I don’t want to single out one company because there are many forces at play here and no rules are being broken — one could argue the city should zone for more buildings. For now, at least, Palo Alto’s downtown is a very different place, and when I ask friends who want to meet up “When are you coming down here in the future?,” the answers are usually in the form of a laugh.